Download

High Time to Trust Patients, Physicians

The days of trusting legislators to have our best interests at heart are in the rearview mirror. It's time for doctors and patients to take the lead.

The days of trusting your legislators to have your best interests at heart are in the rearview mirror. Apparently, their main interest is parroting the buzzwords of the moment to get elected and then being too busy banking lobbying money to listen to the voters. Our legislators have become spectators who wait for the perfect moment to pounce on their political enemy and then go on cable news shows to boast about it. The “us against them” attitude, punctuated by hyperbolic, apocalyptic rhetoric, closes the door to finding solutions. Our interests would be better served by having town hall meetings where voters could state their concerns, air their differences and learn what legislators are doing about their issues. Caution: Meetings at 9 a.m. on Wednesday ,when paid activists are guaranteed to outflank the working general public, are prohibited. There are strong differences of opinion on how to attain a healthy citizenry. Educating potential patients about what drives up medical care expenditures can start the conversation. Well-informed patients would demand solutions based not on corporate interests or government or political agendas but on a fair, competitive market that maximizes choices and achieves lower costs. Eight years of the Affordable Care Act have borne out Congressional Budget Office predictions that abandoning basic principles of insurance—which compensates only for events beyond the insured’s control and is priced according to the degree of risk—would lead to higher and higher premiums, fewer participating insurers and unsustainable government expenditures to subsidize insurance premiums. The data in three recent Centers for Medicare and Medicaid reports on ACA exchanges show “individual market erosion and increasing taxpayer liability.” The average monthly premium for coverage purchased through the exchanges rose 27% in 2018, and federal premium subsidies increased 39% from 2017 to 2018. See also: 10 Reasons Healthcare Won’t Be Disrupted   A less frequently discussed cost driver is the disturbing trend of private doctors’ offices being scooped up by hospitals, health insurance companies and venture capital groups. Prices tend to rise when health systems merge, because of decreased competition. And not only do hospitals and health systems generally charge more than private physicians’ offices, the government compounds this problem by paying more to hospitals than independent offices for the same service. A review of 2015 Medicare payments showed that Medicare paid $1.6 billion more for basic visits at hospital outpatient clinics than for visits to private offices. Patients are the biggest losers: They paid $400 million more out of pocket and had their tax dollars wasted. The study also found hospital-employed physicians’ practice patterns in cardiology, orthopedic and gastroenterology services led to a 27% increase in Medicare costs. This translated to a 21% increase in out-of-pocket costs for patients. Similarly, a U.C. Berkeley School of Public Health study of consolidation of California's hospital, physician and insurance markets from 2010 to 2016 concluded: “Highly concentrated markets are associated with higher prices for a number of hospital and physician services and Affordable Care Act (ACA) premiums.” In consolidated markets (defined by the Federal Trade Commission’s Horizontal Merger Guidelines), prices for inpatient procedures were 79% higher, and outpatient physician prices ranged from 35% to 63% higher (depending on the physician specialty) than less concentrated markets. Big medicine and third-party financing are taking the cost curve in the wrong direction. This speaks to the urgency of encouraging cash-friendly practices that bypass insurance and supporting direct primary care (DPC) practices. With DPC, all primary care services and access to low-priced commonly used medications are included in an affordable upfront price. Importantly, DPC’s time-intensive and individualized management of chronic diseases decrease hospital admissions, paring Medicare’s $17 billion spent on avoidable readmissions. See also: How to Optimize Healthcare Benefits   Why corporations want to marginalize private practice seems clear; the government’s motive is open to debate. Surveys consistently find that patients overwhelmingly want “personalized provider interactions.” Thus, herding patients into government-directed programs is not the solution. One core problem with government systems is their reliance on the goodwill of politicians. As President Ford said, “A government big enough to give you everything you want is a government big enough to take everything you have.” It’s time for Congress to scrutinize anti-competitive health system mergers. It’s time to bring to the floor more than a dozen bills to expand and improve Health Savings Accounts (HSAs) to give patients more control over all facets of their medical care. Congress, the clock is ticking on this legislative session. Stand up for patients. Or did the dog eat your courage?

More Opportunities for Reinsurers in Health

Market liberalization initiatives present even more opportunities for innovators in transparent health reinsurance.

As insurers and regulators address uncertainties in connection with risk-adjustment, transparent health reinsurance emerges ever more forcefully as a marketplace solution for managing risk in connection with healthcare costs. 

The immediate instance animating fresh reconsideration of health reinsurance is the early July Trump administration decision to desist from administering risk adjustment. The decision followed a federal court decision in New Mexico that found that the Centers for Medicare and Medicaid Services was being arbitrary and capricious in its risk adjustment. 

There is nothing inherent in risk adjustment that makes rational and neutral implementation impossible. It is simply that CMS wasn’t doing that in New Mexico in the court’s determination, so the judge sided with Land of Enchantment insurers and rapped CMS’s knuckles. Risk adjustment is a permanent element of the Affordable Care Act, or Obamacare, to transfer risk among insurers. Transitional reinsurance and risk corridors, elements of Obamacare that expired at the end of 2016, worked well... and badly. Transitional reinsurance had pooled enough money, coupled with $5 billion of Treasury subsidies over three years, to pay claims. Risk corridors, by contrast, paid but 12.5% on claims and put a number of insurers in the lurch. They had entered Obamacare markets on the supposition that risk corridors would pay vastly more. 

Administration decision making on risk adjustment leads inescapably to uncertainty because of the potential for adverse selection, an escapable element of insurance. Nicholas Bagley, a scholar, says that, “in one sense, the furor over the risk adjustment program may be overdrawn. The 2019 rule has been fixed, so we’re really talking about accounts receivable at this point. They’re big accounts receivable, amounting to hundreds of millions of dollars, but most insurers can handle a short delay in getting paid."

In another sense, however, the needless suspension of the risk adjustment program is a signal that the Trump administration remains intent on sabotage. Already, insurers were stiffed on their risk corridor money. Then the cost-sharing payments evaporated. Now, even risk adjustment money may go up in smoke. What’s next? This is no way to run a health program, and no way to run a government. 

One practical solution is to embrace transparent health reinsurance, a proposal that ITL published in anticipation of fade-outs for risk corridors and transitional reinsurance just over two years ago. If anything, conditions are more propitious now. 

See also: Reinsurance: Dying… or in a Golden Age?   

This past fall, the president placed the foundation for association health plans. Last month, the Department of Labor issued implementation guidance, which will go into effect later in August, so associations of enterprises could jointly negotiate and purchase health care coverage. DOL says: “As it has for large company plans since 1974, the department's Employee Benefits Security Administration will monitor these new plans to ensure compliance with the law and protect consumers. Additionally, states will continue to share enforcement authority with the federal government.” 

Similarly, the Trump market liberalization for short-term, limited-duration insurance opens another market for reinsurers. As with association health plans, CMS says that, “in the final rule, we also strengthened the language required in the notice and included language deferring to state authority.” 

The market liberalization initiatives, coupled with Department of Labor, CMS and state regulatory oversight, present signal opportunities for reinsurers. For instance, in the emerging private flood insurance market, “market growth to date has largely been driven by the interest of global reinsurers in covering more U.S. flood risk,” the Wharton Risk Management and Decision Processes Center reported in July 2018. Issuers would mitigate adverse selection. Associations and issuers of short-term, limited-duration insurance would mitigate risk. State legislators and regulators could enact statutes and set standards, their domain competencies. Mandatory, state-based reinsurance is wholly feasible, particularly in densely populated states, for each marketplace offering. This approach could go a long way toward creating foundations for accountable health organizations. 

See also: The Dawn of Digital Reinsurance   

Innovators like Amazon Web Services could bring one element of available technologies, cloud computing, to provide fresh applications boosting asset values and volumes and increasing probabilities for effective service. Associations, enterprises and individuals would experience greater healthcare security and quality.

Emerging Market for Flood Insurance

Although the NFIP dominates, a small market has appeared for private flood insurance in the U.S. The question is: Will it continue to develop?

The federal National Flood Insurance Program (NFIP) underwrites the overwhelming majority of residential flood insurance policies in the U.S. As of April 2018, more than 5 million NFIP policies were in force nationwide (4.8 million residential), representing slightly more than $1.28 trillion in coverage ($1.17 trillion residential). For decades, the NFIP has been homeowners’ only option for flood insurance, but over the past several years a small private market for residential flood insurance has emerged. Policymakers are increasingly interested in learning whether the expansion of this market could help meet the policy goals of increasing the number of homeowners with flood insurance or offering more affordable coverage. Stakeholders—in congressional testimony, op-eds, reports and other forums—have offered diverging opinions as to the appetite of the private sector in writing more flood insurance, on the existing barriers to private coverage and on the implications for the NFIP. The present state of the market is unclear, particularly because there is no nationwide database on the companies writing residential flood insurance, coverages offered, policy terms, pricing and any differences between private and NFIP flood insurance. This makes it difficult to evaluate the market’s future evolution and relationship to the NFIP. This report aims to fill these knowledge gaps and has two primary objectives:
  1.  to document the current state of the private, residential flood insurance market across the U.S.; and
  2. to identify the main factors influencing the number and form of flood insurance policies offered by the private market.
To meet these objectives, we conducted in-depth, semi-structured interviews with 63 insurers, reinsurers, state brokers and other market participants. We also gathered and analyzed current private market data from a range of sources, including public documents, congressional testimony, news articles, state regulators and private firms. See also: Future of Flood Insurance   Key Findings
  • The private residential flood insurance market in the U.S. is currently small relative to the NFIP. We estimate that private flood insurance accounts for roughly 3.5% to 4.5% of all primary residential flood policies currently purchased.
  • With the exception of Puerto Rico, more policies are written by surplus lines carriers than by admitted carriers subject to state rate and form regulations. This is unsurprising, because surplus lines firms tend to cover new or catastrophic risks for which consumers may have trouble finding coverage in the admitted market.
  • Roughly 20% of private residential flood policies (and 40% of admitted carrier policies) are in Puerto Rico; another roughly 20% are in Florida. No data are available to evaluate the size of the total private market in other states or at a substate level nationwide.
  • Private market growth to date has largely been driven by the interest of global reinsurers in covering more U.S. flood risk. In the admitted market, reinsurers are assuming most of the risk for primary insurers, often in excess of 90%. In the surplus lines market, Lloyd’s of London has played a major role, backing the majority of residential flood policies.
  • Among the small number of policies written by the private sector, we identified three broad policy types. The most prevalent is what we refer to as an “NFIP+” policy within the FEMA-mapped 100-year floodplain, where flood insurance is required for federally backed mortgages. NFIP+ policies have higher limits or broader coverages than NFIP policies. Most are stand-alone policies, although some are sold as endorsements to homeowners policies. A second type is a lower-coverage-limit policy issued as an endorsement in lower-risk areas. The third type, used by only a couple of firms, mimics the NFIP policy.
  • There does not exist data to ascertain how many homeowners previously uninsured against flood are purchasing private policies versus how many are switching from NFIP policies to private coverage. Insurers in the market believe their portfolios include both newly insureds and policyholders switching from the NFIP.
  • Because the NFIP will provide a policy to anyone in a participating community, private firms can operate only where they can price lower than the NFIP or provide broader or different coverages for which there is consumer demand. In a sense, then, the NFIP is a default benchmark for comparison with private flood insurance policies.
  • Companies have identified certain types of properties or risks where they believe they can profitably operate and compete with the NFIP. Those target areas of opportunity, however, vary across firms. For example, some are restricting themselves to areas that FEMA designates as having lower flood risk, and others are focusing on areas that FEMA designates as at higher flood risk.
  • The largest U.S. homeowners insurance companies have generally been hesitant to enter the flood market, although a few have begun to enter through subsidiaries. Their caution, we learned, stems from concern about being unable to adjust rating or policy coverages as they gain experience in writing flood because of state regulatory practices; concentration of risk in their portfolio; correlation of flood with existing wind exposure; satisfaction with the current arrangement; and concern about reputational risk should they need to raise premiums or scale back coverage as they explore the potential flood market.
  • More private capital is now willing to back private flood coverage in the U.S. Interviewees agreed that, as insurers’ familiarity with flood catastrophe models grows, as underwriting experience develops and as state regulatory structures evolve, the number of private flood policies in force could continue to grow, including among admitted carriers. As of this writing, there were multiple new rate filings in many states, suggesting a continued expansion of the market.
  • Whereas the NFIP is required to take all risks, private insurers are selective in their underwriting. All interviewees agreed that the private sector will never be able to write policies for certain properties or locations (e.g., repetitive loss properties or high-tide flooding areas) at a price homeowners would be willing to pay. Substantial public investment in risk reduction, combined with aggressive land-use management, they said, was essential for limiting future exposure and encouraging the private sector to move into those areas.
  • The private market participants we interviewed differed as to how much flood risk in the U.S., and storm surge risk in particular, they thought could be underwritten by the private sector. All agreed there would likely remain a large and important role for the NFIP to play, particularly in the near term.
  • Acceptance of private flood insurance by banks and financial institutions does not appear to be a major constraint on the market at present. With very few exceptions, private insurers have told us banks ultimately accept their products, though they may have some initial questions or concerns.
  • There is a need for expanded insurance agent education about flood risk and flood insurance products, both for the NFIP and private policies. Interviewees disagreed about whether the higher-than-market commissions paid by the NFIP were creating a disincentive for the private market.
  • Most interviewees saw limited demand for flood coverage today, whether offered by the NFIP or by a private provider, and said that consumers were price sensitive.
See also: How to Make Flood Insurance Affordable   This report was written by Carolyn Kousky, Howard Kunreuther, Brett Lingle, and Leonard Shabman. You can find the full report here.

Howard Kunreuther

Profile picture for user HowardKunreuther

Howard Kunreuther

Howard C. Kunreuther is professor of decision sciences and business and public policy at the Wharton School, and co-director of the Wharton Risk Management and Decision Processes Center.

How to Create Resilient Cybersecurity Model

Insurers need tools providing visibility into their insureds’ cybersecurity ecosystems on a continual basis, such as security ratings.

As data breaches increase in type, severity and number, more companies plan to purchase cyber insurance. While cyber insurance premiums in 2016 in the U.S. were $5 billion, projections indicate they will increase to $20 billion by 2020. Complex cyber crimes mean insurers find themselves facing contentiously complex relationships with their insureds. To create a resilient business model, both of these parties need to communicate effectively and understand the overt and hidden risks they face. The Underwriting Communication Gap Information forms the basis of strong underwriting. With traditional general liability policies, insurers can easily gather information on a company’s financial solvency by reviewing publicly available documents such as annual financial reports or credit ratings. With cybersecurity policies, attack vectors extend in a variety of directions, making information less tangible for underwriters. With a compounded annual growth rate of 41%, cyber insurers need insight into the full range of their insureds’ risks. The present model relies on questionnaires from applicants; however, when insureds misrepresent or misunderstand their risks, insurance companies suffer billions in losses. Often, the cost of a breach exceeds the limits of a policy’s liability, meaning that even those companies with insurance find themselves underinsured. Because courts generally agree that general liability policies do not cover cyber loss, business continuity plans require appropriate insurance aggregates to fully cover losses. Even the most sophisticated companies find themselves unaware of their biggest cyber risks. When insureds lack data, underwriters cannot effectively write policies. Thus, the communication gap poses a risk for both the insureds that remain underinsured and the insurance companies that may be overextending their books of business. Security ratings act as a tool that allow better communication between insurers and their insureds when establishing a cyber security policy relationship, similar to credit ratings in the general liability arena. See also: Roadblocks to Good Customer Relations   The Claims Communication Gap Insureds use insurance to protect their internal and external stakeholders. However, the communication gap creates a claims problem for insureds. Coverage litigation costs and a sense of betrayal ruin relationships between companies that share the economic ecosystem. The Equifax breach offers a contemporary example. Most recent estimates place Equifax's breach costs at $275 million, but the company retained only $75 million in cybersecurity insurance. A single employee’s failure to patch a known vulnerability in the Apache Struts Java application created an opportunity for hackers. Equifax’s failure to understand its own patching cadence led to its underinsured status and, ultimately, its severe losses. Information Enables Resilience The information security community focuses on resilience. When a distributed denial of service attack causes a company to shut down services for days or weeks, the company lacks cybersecurity resilience. An insurance company’s resilience requires setting aside financial reserves to cover claims costs. Because cyber policies often cover business interruption costs, businesses that lack cyber resiliency too often claim losses and file insurance claims. Security ratings provide insight into an insured’s resilience. Because data breaches are inevitable, even companies with strong security ratings may be hacked, but their continued attention to their environments means they will have strong disaster recovery protocols limiting business interruption. To remain financially stable and resilient, insurance companies need to adequately estimate potential losses so that premiums adequately align with their risk acceptance. Insurance companies and their customers need shared visibility into the protected cyber ecosystem. Otherwise, insurers continue to dissuade financial safety by overestimating premiums while companies risk their solvency by underinsuring their business. This business model promotes neither economic stability nor resiliency. Continuous Monitoring Builds Continuous Relationships Remedying the information and communication gap between insurers and insureds provides the only solution to the current resilience problem. Companies often prove, through audit reports, that they engage in information security, yet those documents show proof of only a single moment in time. Insurers need tools providing visibility into their insureds’ ecosystems on a continual basis, such as security ratings. Organizations face data security threats from both their IT environments and those of their vendors. One breached vendor creates a domino effect of cyber insurance claims as the damage travels through the supply chain. Insurers and insureds need to be able to communicate both visible and hidden cyber risks. Security ratings continuously monitor insureds’ endpoint security, IDS and antivirus, while also providing a shared language so they can effectively communicate with insurers. Insurers, conversely, can use the shared language of security ratings to communicate to insureds the impact that security vulnerabilities have on insurance premiums and coverage. See also: The New Agent-Customer Relationship   In the cyber insurance space, increased claim complexity degrades the symbiotic relationship. As insureds shop around for better premiums, insurers lose valuable business. To promote continued business relationships, the two parties can both benefit from automated tools that enable continuous communication about continuous monitoring. Tools to facilitate visibility help establish metrics for the appropriate pricing of risk to cover potential losses and set reasonable premiums. Insureds must communicate with their insurance companies; however, companies focusing on the daily tasks of conducting business lose track of communication and time. Therefore, insurance companies need to protect themselves by monitoring their insureds. Security ratings are poised to help promote resiliency between, as well as within, industries by offering publicly facing data. With the right continuous monitoring metrics, SaaS platforms can enable continuous relationships that reinvigorate the insurer-insured symbiotic relationship.

The Best Workers’ Comp Claims Teams

A major study identifies the “top three” practices that organizations should adopt to join their successful peers.

Workers’ comp claims teams vary in their performance. Yet there has been no way to clearly identify what superior performance means and what superior performers do. Now we have the summary results of a five-year, 1,700-participant survey project to provide answers. The annual Workers’ Compensation Benchmarking Study, founded in 2013 and published by Rising Medical Solutions, pinpoints what separates the top quarter of claims organizations from the rest. To date, five Study reports have racked up more than 500 pages of text, tables and graphs. In a new white paper – How to Close the Claims Performance Gap – this multi-year data is whittled into the “top three” practices claims that organizations should adopt to join their more successful peers. Here we discuss one of them: Best performers focus more on what’s most important Workers’ compensation claims entail managing a wide array of competencies encompassing legal, medical, workplace, regulatory and psychosocial factors that affect recovery and claims closure rates. Therefore, a first step in comparing performance is to find out what and how claims teams focus on “core competencies.” See also: The State of Workers’ Compensation   Since the Study’s onset, claims executives have been asked to rank in order of importance the 10 core competencies most vital to successful claims outcomes. Survey participants – the majority of whom work for insurers, third-party administrators and self-administered employers – have consistently ranked medical management, disability/return-to-work (RTW) management and compensability investigations as the top three capabilities most critical to claim outcomes. Not that other items on the list, including litigation management and claims reserving, are not important competencies. But survey participants ranked them as having a less significant impact on achieving the best claims outcome – with survey participants defining an employee’s return to the same or better pre-injury functional capabilities as the #1 classification of a “good claims outcome.” This definition of an optimal outcome reflects a shift away from a reactive culture more focused on legal compliance, toward a more proactive, service-oriented approach. The 1,700-plus survey respondents clearly say that this is the business they are in, with upward of one million compensable, new lost-time claims occuring each year. However, there are striking stratifications in this “business” with higher-performing claims organizations outpacing lower performers by factors of five six, and 10 respectively when it comes to measuring their performance within core competencies, measuring claim outcomes based on evidence-based treatment guidelines and measuring claim outcomes based on evidence-based disability duration guidelines. The primary reasons that lower performers cite for not measuring performance within core competencies are: data/system limitations, unsure how to operationalize and, startlingly, it’s not a business priority. The study was able to separate high performers from lower performers by ranking respondents by their claims closure ratio. A closure ratio of 75% means that for every three claims closed, four are opened. Organizations with a closure ratio of 100% run a tight ship, closing claims at the same pace they are opening new ones. Claims experts agree that a claims ratio of 101% or higher is a reliable sign that the organization is managing claims outcomes effectively. For claims executives and system designers, the message is clear: Focus on and measure key core competencies more to succeed. See also: States of Confusion: Workers Comp Extraterritorial Issues  In addition to core competencies, we have identified two more critical practices that claims organizations should implement to join the elite ranks. With only 24% of industry payers achieving top-performer status, this means the remaining 76% need to take action or risk falling further behind. To learn about these two critical practices, as well as viable implementation strategies, read our entire white paper, freely available here.

Peter Rousmaniere

Profile picture for user PeterRousmaniere

Peter Rousmaniere

Peter Rousmaniere is a journalist and consultant in the field of risk management, with a special focus on work injury risk. He has written 200 articles on many aspects of prevention, injury management and insurance. He was lead author of "Workers' Compensation Opt-out: Can Privatization Work?" (2012).

Will Apple enter insurance? Google? Microsoft? Amazon?

To justify their valuations, Big Tech companies need to keep gobbling up other markets. Might insurance be on the menu?

sixthings

Apple's market value crested $1 trillion last week, and its big-tech brethren Google, Microsoft and Amazon aren't far behind; all are valued at north of $800 billion. But to justify their valuations the companies need to keep gobbling up other markets.

Might insurance be on the menu?

All have at least dabbled in insurance, and all will go wherever they see major potential -- in the words of omnivorous Amazon CEO Jeff Bezos, "Your margin is my opportunity." At a time when digitization is the key struggle for insurers, all have decades of experience with smooth, efficient, automated processes. All know how to produce a great customer experience. All have extensive data about customers. And all have the size to tackle the mind-bending problems that insurance faces -- by contrast, you'd have to combine AIG, Prudential and Allstate just to surpass $100 billion in market value, let alone $800 billion or $1 trillion. 

There are natural limits to big tech's interest in insurance. The companies -- let's call them AGMA so we don't have to get into a MAGA discussion -- are allergic to heavy regulation. "Move fast and break things" works in Silicon Valley, but no insurance regulator would allow that approach. AGMA also believe in asset-light businesses. None wants to put up the kind of capital that is required in insurance. 

But insurance generates trillions of dollars of business a year worldwide -- a big number even by AGMA standards -- and many incumbents look like easy targets. So, which AGMA company makes a big move first? When? And what will that first move look like?

I hope you'll join me in a discussion to try to answer those questions. Our mantra at ITL has long been, "No one is as smart as everybody," and I think we'll come to a better answer together than we will individually. I set up a discussion two weeks ago to focus on another issue related to innovation, the KPIs that can be used to measure progress for corporate programs, and found the interaction fascinating. I'm now posting for discussion this question about what big tech plans. I've tried to seed the discussion with a fair amount of background on what the companies have done and have said about their plans.  

If you aren't already a member of our Innovator's Edge platform, to join the group you can just click here. Registration is free and fast. Then click here to see the group discussion. The process is painless -- and could be enlightening.

Have a great week.

Paul Carroll
Editor-in-Chief 

Paul Carroll

Profile picture for user PaulCarroll

Paul Carroll

Paul Carroll is the editor-in-chief of Insurance Thought Leadership.

He is also co-author of A Brief History of a Perfect Future: Inventing the Future We Can Proudly Leave Our Kids by 2050 and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993.

Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

Insurance and the Internet of Things

Imagine a world where the main perils for homeowners, such as water, fire and theft, are dramatically reduced through the IoT and smart homes.

|||||||
For many, the concept of a “smart home” is a futuristic, and perhaps even frivolous, offering where lights shut off automatically once we fall asleep, thermostats are controlled from your phone and security cameras can show you what’s going on in your home from thousands of miles away. However, as I have written in many previous posts, we are only at the start of the Internet of Things (IoT). Significantly more sophisticated devices are already entering the market and soon consumers will see the benefits of both enhanced personal safety and home protection. Forward-thinking insurance companies are not only recognizing the potential for reduction in non-catastrophic loses, they are embracing the potential by filing smart home discounts to create incentives for consumers who use these technologies. Let’s look at a few of these enabling technologies and their potential for loss reduction/avoidance around the core perils of water, fire and theft: 1) Advanced home security products — The professionally monitored home security market has limited penetration in the U.S. — a significant number of home owners don’t feel the need to have their homes monitored for theft. However, many IoT devices enable basic self-monitoring features as a secondary benefit. From video cameras with 24x7 recording, to controllable door locks, to lights that are triggered on with motion, home owners are now getting home security features included with IoT products that might otherwise be purchased primarily for convenience. 2) Leak detection — Traditionally, these products focus on single points of failure, providing coverage in specific locations, such as below a dishwasher or a hot water tank. While providing a lot of utility relative to their cost, it’s been hard to programmatically prove loss reduction with these devices as the location of the sensor has so much to do with catching the leak. That said, more ambitious forms of leak detectors are entering the market, enabling whole-home monitoring, from flow sensors installed on mains, to lightweight stripping that can be installed in floor boards. Additionally, a series of whole-home shut-off valves are also being introduced into the market. Most of these valves require professional installation; however, they are capable of automatically closing the water main with the slightest detection of a leak or abnormal usage patterns. Water losses may be greatly reduced if a home could automatically respond to a burst pipe or an overflowed toilet. 3) Connected smoke alarms and “listeners” — Fire alarms have saved many lives, but the original design was intended to notify occupants of a fire so they could quickly exit. Unfortunately, if no one is home to hear a smoke alarm, there isn’t much that can be done by way of stopping a fire before a total loss. But the new generation of connected smoke alarms and “listeners” (an add-on that hears an alarm and sends a signal) can message not only the home owner but also a third party who can dispatch emergency crews on a homeowner’s behalf. It’s not hard to imagine how dramatic loss reductions will be when all homes have connected fire safety devices. An exciting aspect of all of these enhancements is that they are incremental improvements on already approved safety devices, enabling a fast track of the actuarial analysis/regulatory acceptance of additional discounts. But these improvements are just the start… See also: Global Trend Map No. 7: Internet of Things   Connected devices are particularly special because the “intelligence” doesn’t necessarily need to reside on the device itself, but could also live in the cloud, where processing is getting more powerful and less expensive by the day. As such, there is a tremendous amount of innovation in the data analytics space — and here are a few technologies that will almost certainly result in greater loss reduction: 1) Real-time analytics — the more information that can be analyzed in real time, be it from multiple sensors or devices or historical data, the higher the accuracy in early detection of a potential loss situation. For instance, a sharp rise on a temperature sensor might indicate a fire, but it also could be caused from sunlight striking the device. Long-term tracking of that temperature data might quickly indicate what is normal, what is not. Or perhaps a flow sensor might detect a flow of water similar to shower running, but when paired with alarm system that shows the home is unoccupied and the alarm has been in “away” mode for several days could be a clear indication of a burst pipe. 2) Automated response logic — connected devices lend themselves well for automated responses. Homeowners will be able to create steps that are enacted when emergencies are detected. For instance, when a fire alarm rings, the sequence might be something like: a) snap a picture from each camera and take a temperature read from each sensor in the house, b) email/text all of the family that lives there with the data to confirm or override an emergency call, c) if no response within 60 seconds, forward the notifications to a third party for emergency dispatch. Automation combined with human intervention allows for a more accurate and effective response. 3) Predictive analytics — ultimately the best way to lower losses is to prevent problems before they start. This is where heavy processing power is required — as well as buy-in from consumers on the use of their data. Connected homes provide streams of output data and, with it, anticipated performance. Variances in this data might indicate early stages of problems. For instance, a packaged HVAC system might be showing degradation of airflow in the summer, which could mean trouble for gas heating as temperatures drop. It might be in the best interest of the insurance company to ensure performance is restored as the winter comes, prior to the risk of freezing pipes. Additionally, as we are seeing in telematics and auto insurance, you can bet that consumer behaviors will also have the potential to be analyzed, no doubt showing correlation between “safe” homeowners and reduced loss. While more forward-facing than the device enhancements listed in the first section of this article, it’s these enhanced intelligence features that will truly revolutionize loss models. The more advanced the technology becomes, the less dependent the loss prevention becomes on human behaviors. See also: Insurance and the Internet of Things   Imagine a world where the main perils for homeowners insurance carriers such as water, fire and theft are dramatically reduced through the IoT and smart homes. Yes, consumer mistakes/negligence, even moral hazard, will always be an issue, but at some point it’s very possible the home will become smart enough to compensate even for these factors in a substantial way. We are already seeing rapid advancements in these areas in both telematics for auto insurance and wearables for life and health insurance. Similarly with smart homes, these IoT technologies have significant potential to lower losses from non-cat perils.

David Wechsler

Profile picture for user DavidWechsler

David Wechsler

David Wechsler has spent the majority of his career in emerging tech. He recently joined Comcast Xfinity, focused on helping drive the adoption of Internet of Things (IoT), in particular with insurance, energy and smart home/home automation.

Survival Guide for Women in Insurtech

"While pitching, I've seen folks look to my male co-founders for confirmation. I'm like: 'Dude, do I smell or something?'"

One of my friends recently shared this article with me from Harvard Business Review, talking about how male and female entrepreneurs get asked different questions from venture capitalists, and the correlation of the questions and funding. I laughed as I recently had a similar experience. My company, Benekiva, consists of four founders: three men and me. We are diverse in our skillsets and perspectives, which makes our team very strong. We are also very experienced -- not saying we are old :) but we have been in corporations, run multiple startups, managed diverse teams and held mid- to senior-level positions. Being in the technology industry for nearly a decade and a half, as a woman, I've seen that getting "preventive" questions is such a norm, and the more you climb up the ladder the number you tend to become. I have encountered several times where I had to justify or prove my recommendations on a tech architecture or solution while my male counterparts could walk in and have a much shorter conversation. While pitching, I've seen folks look to my male co-founders for confirmation. I'm like: "Dude, do I smell or something? Do I need to throw out my credentials for you to believe me?" Recently, I pitched Benekiva to a couple of seasoned mentors. Benekiva is a software solution to bridge the gap between life insurance companies and their intended beneficiaries through claims automation, beneficiary and policyholder management and asset retention. As I was walking the mentors through the pitch deck, I kept getting interrupted and at one point was told, "I don't believe there is a problem." (Note: There is more than $14 billion of unclaimed property from life insurance policies, and that grows at an annual rate of $1 billion; the claims process is broken.) At the end of the meeting, I was told, "Great job, and they were tough for a reason." I left confused. What do you mean, for a reason? Was this a test? A co-founder, on the other hand, had a conversation with a similar audience and kept getting comments such as, "Wow" and "This is genius." See also: How Technology Breaks Down Silos   Earlier in my startup journey, I was nicely told that I was a pretty accessory, the female touch. The list of demeaning comments could keep going on, even though I've been a chief product officer, a CTO and a CEO. I'm not alone. Many women founders are facing similar problems, especially on the insurtech side. How might one survive? Here are some tips that have helped me not punch someone in the face:
  • Come prepared — It is hard to hear statements from your male colleagues about how they can just wing a pitch. We women may, but chances are that we will hear about it. Prepare and practice answers to the questions. The HBR article provides a great point about how to turn a "preventive" question into a "promotion" one.
  • Be confident — I don't care about hearing how I am intimidating. I have expertise and come across confident. I also don't have an ego about it -- I am very humble and helping. When facing investors, mentors, prospects, current clients, be confident. Answer with confidence because who knows better than you about your business, product, process, etc.?
  • Avoid the impostor syndrome — Especially when getting drilled continuously, it is easy to start doubting your abilities. Don't! Think about your successes and stop the negativity and the voices of self-doubt.
  • Find a peer group — Hang out with other entrepreneurs who are in your space. If there isn't a group, create a meet-up! I've started a meet-up in my region for Women in Tech and allies to share experiences and develop a network of tech women that can support and lift each other.
  • Be positive — No excuses. Don't put too much energy into the negativity. See what has happened as a chapter in your book. I'm not saying not to address problems, but don't let them fester so much that you are spending time fighting something that is not worth the effort.
See also: Startups Take a Seat at the Table   Finally — Write about your experiences and share with colleagues. Knowledge is power, and perhaps your story can inspire others.

Bobbie Shrivastav

Profile picture for user BobbieShrivastav

Bobbie Shrivastav

Bobbie Shrivastav is founder and managing principal of Solvrays.

Previously, she was co-founder and CEO of Docsmore, where she introduced an interactive, workflow-driven document management solution to optimize operations. She then co-founded Benekiva, where, as COO, she spearheaded initiatives to improve efficiency and customer engagement in life insurance.

She co-hosts the Insurance Sync podcast with Laurel Jordan, where they explore industry trends and innovations. She is co-author of the book series "Momentum: Makers and Builders" with Renu Ann Joseph.

Is P&C Distribution Actually Digitizing?

If a portal allows a customer to pay via credit card but then defaults to paper-based processes, there is a serious disconnect.

Today, the discussions around insurance distribution channels are in perpetual motion – everyone has an opinion as to where it’s going. But where is it today? What has changed? What hasn’t? And where are the investment dollars going? These are great questions, and most insurance professionals are interested in the answers. With that in mind, SMA conducted research about today’s distribution trends – and the findings are presented in P&C Insurance Distribution: Responding to a Rapidly Changing Ecosystem. Understanding where the current industry trends stand is important so that insurers can benchmark their organizations’ progress relative to competitors and the industry at large. The data is interesting, of course, but several important questions do arise that insurers need to consider and answer. In other words – get under the covers! When asked about digital strategies, 46% of responders indicate they are working on a digital strategy – but it isn’t in place yet. Given that rather significant percentage, one has to wonder if the spending around agent/broker portals (83% indicate it is #1) is for tactical reasons or strategic reasons. One could quickly conjecture that, either way, portals solve a business problem. So, there is value. That’s true … and it’s not. If the portal investment is not aligned with a corporate digital strategy, then the investment could be for naught because it does not support the overall corporate direction and might be throw-away dollars and effort. Perhaps the portal only holds value for a certain group – for example, agents and brokers – but misses the mark for customers. Does that mean that insurers should do nothing until a digital strategy is nailed down? That would not be practical either. The point is that when advancing digital capabilities in a tactical fashion, flexibility must be a core project goal. The technology choices for platform and installation (cloud vs. on-premises) must be capable of responding to strategic choices as they are made and not be unidirectional. A second critical question arising from the digital distribution spending research data relates to the amount of focus insurers are placing on internal processes. Survey results indicate that less than half (46%) are spending on internal operations to meet digital distribution goals. The question that arises is: Are insurers focusing on other technologies because their internal processes are already aligned to digital distribution transactions and outcomes? Or do insurers continue to believe that the corporate external-facing capabilities are most important – and internal processes can continue as they always have? Digital transactions expose internal processes that are holdovers from a manual, paper-based world. Billing is a perfect example of this. If a portal allows a customer to submit payment via a credit card but then advises the customer it will take three to five days to post (as the payment goes through standard internal, manual-posting processes) there is a serious disconnect from today’s digital world and what that customer expects to happen. As insurers assess and advance various digital distribution strategies, it is imperative that internal processes be re-engineered from the outside in so that interactions flow logically from the perspective of the agent/broker and consumer. This is not easy, but it is a critical element for success. See also: How Digital Platform Smooths Operations   In addition to technology spending trends, P&C Insurance Distribution: Responding to a Rapidly Changing Ecosystem explores the changing relationship between insurers and agents/brokers due to changing distribution demands. The report also provides insights into the role of startup insurtech distributors that are responding to changes in the marketplace and making inroads. There are many points that insurers must consider as they move forward with distribution channel decisions. Every insurer is going to be on a different discovery path. As that journey moves forward, it is critical to look under the covers of those decisions. Customers, agents/brokers and employees all have a stake in outcomes. The points of view and levels of involvement will be different – but they must all be considered.

Karen Pauli

Profile picture for user KarenPauli

Karen Pauli

Karen Pauli is a former principal at SMA. She has comprehensive knowledge about how technology can drive improved results, innovation and transformation. She has worked with insurers and technology providers to reimagine processes and procedures to change business outcomes and support evolving business models.

An Insurtech Reality Check

Longer-term technological investments must be tempered with an understanding of what technologies will help move the needle in the present.

If you’ve got your eyes set on technology that won’t move the needle this year, it’s time to reevaluate what can provide bottom-line results in the short term. AI and machine learning will have their day in commercial insurance. But what are you doing today to drive tangible business results? Insurtech does not have to be a “pie in the sky” endeavor. It can be deployed right now. Just a year ago, the insurtech conversation was all about innovation labs, blockchain, IOT, wearables and, of course, AI. Now, the dust has settled a bit, and the realization has set in that those bright, shiny objects may take years to make a real impact on re/insurers’ bottom lines. While they are still undoubtedly vital to innovation, long-term success and survival, it’s important to strike a balance between “pie in the sky” and practical. Last year’s devastating catastrophes served as a catalyst for more focus on short-term solutions that can improve bottom lines—now. Not years from now. This swing to here-and-now solutions was recently articulated in an article by Ilya Bodner, founder of insurtech startup Bold Penguin, where he notes: “Insurtech is moving rapidly now into commercial lines where the attention and intent is focused on solutions that will deliver a strategic and immediate return on investment (ROI)....Insurers are moving away from bright, shiny, insurtech objects and toward service partners, emerging technologies and solution providers with a return on investment more immediate than promised for five years down the road.” I second this sentiment. P&C risks are changing, as evidenced by 2017’s $144 billion in global insured losses and a commercial lines combined ratio of 104%. And, while a strong market made many insurers whole last year, that is not a guarantee going forward. The next hurricane, flood or wildfire won’t wait for you to innovate. Insurers must find ways to bring innovation to their bottom lines now. Don’t get me wrong, pie in the sky is good—and it is necessary. But insurers must strike a balance between their long games and short gains. You need both. Caution: The hard truth I don’t have to tell you that following last year’s back-to-back hurricanes there was an outcry about how the models got it wrong (of course, it didn’t help that some modelers put out early and grossly inaccurate estimates that incited market confusion and concern). Here’s the hard truth: Insurers also got it wrong. Got it wrong by using a single view of risk; by not taking advantage of innovations in data; by taking too long to operationalize data; by waiting for the perfect, utopian platform (in-house or commercial) to be built or delivered; by expecting legacy analytics software to deliver the scalability, reliability and insight required to act efficiently and effectively. No longer can insurers approach risk The. Same. Old. Way. Risk is changing. You must change with it. And the good news is, integrating insurtech in a way that helps you better assess and manage the evolving landscape of catastrophe risk doesn’t have to be time-consuming or costly, and it can produce immediate results. Here are a few of the challenges that insurers face that insurtech can help them address, in the here and now:
  • Reality: Models provide a “framework for thinking; they don’t represent truth.” Evan Greenberg, chairman and CEO of Chubb, recently stated, “Given there have been three one-in-100-year floods in 18 months, how can Harvey represent a 1% chance of occurring, as the models suggested? Models provide an organized framework for thinking; they don’t represent truth.” Now, we all know models serve an important purpose, and our clients can derive insights from modeled data within our platform. But models must be taken with a dose of good old-fashioned human judgment. Models and the outputs are nuanced. It’s all about identifying the right models and model components that best represent your lines of business, geography and business practices. But it’s also about balancing resources and business value with this expensive exercise. You need to have an intelligent conversation about model nuances—and figure out the “so what” questions that models provoke but don’t answer.
See also: Can Insurtech Rescue Insurance?  
  • Reality: You can’t handle all the data. There’s a gap between the wealth of data now available and an insurer’s ability to quickly process, contextualize and derive insight from that data. Insurers are generally frustrated by a lack of process and an easy way to consume the frequent and sophisticated data that expert providers put out during events like Harvey, Irma, Maria, the Mexico City earthquake and the California wildfires. Beyond the sheer volume of data, insurance professionals are expected to make sense of it by using complex GIS tools. In reality, you have all this data but no actionable information because you can’t effectively make sense of it. Even insurers with dedicated data teams and in-house GIS specialists struggle to keep up. (SpatialKey tackles this problem by enabling expert data from disparate sources (e.g. NOAA, Impact Forecasting, JBA, KatRisk) and putting it into usable formats that insurers can instantly derive insight from and deploy throughout their organizations. We do the processing work, so our clients can focus on the analysis work.)
  • Reality: Your best data is your own, but you’re not benefiting from it. It’s one thing to be in possession of data, and quite another to be able to realize its full value. Data alone has little value. One of our clients, for example, needed a way to re-deploy its own data to its underwriters, so we helped the company integrate an underwriting solution that would put its data, along with expert third-party data, in the hands of its underwriters—all from a single access point that would consolidate disparate sources and drive enterprise consistency.
  • Reality: Your customers expect on-demand; you should, too. Your customers don’t want to wait for a quote or go through a lengthy process to submit a claim. Our society is instant everything, and while commercial insurance may not be held to the same real-time pressure as personal lines, it is moving in that direction. When you need the latest hurricane footprint, you need it now, not four hours from now. When an earthquake strikes Mexico City, you need to understand your potential business interruption costs today. When a volcano is erupting and no drones are allowed in the surrounding airspace, you need a geospatial analytics solution that can help you provide advanced outreach to insureds and do the financial calculations to understand actual exposure. Likewise, when your underwriters are trying to win business, you’d rather they spent their time evaluating the risk than searching for information.
Who knows what this hurricane or wildfire season will hold. The question is, are you prepared to handle it better than last year? What changes have you made to strengthen your resilience and that of your insureds? What has been learned and applied for meaningful results? It’s a misnomer that insurtech and disruption go hand in hand. Some insurtech solutions are built to complement—to drive efficiencies, cost savings and underwriting profitability—not necessarily replace existing processes or legacy systems. Data and analytics is an area where insurers, brokers and MGAs can still improve their bottom lines yet in 2018. See also: To Be or Not to Be Insurtech   Take down the pie and dig in My intention is not to dilute the importance of up-and-coming insurtech technologies, like AI and machine learning. They will undoubtedly help insurers compete as risks become more complex. My point is that those longer-term technological investments must be tempered with an understanding of what technologies will help move the needle in the present. You can strike a balance between pie-in-the-sky insurtech and insurtech that works for you now.

Bret Stone

Profile picture for user BretStone

Bret Stone

Bret Stone is president at SpatialKey. He’s passionate about solving insurers' analytic challenges and driving innovation to market through well-designed analytics, workflow and expert content. Before joining SpatialKey in 2012, he held analytic and product management roles at RMS, Willis Re and Allstate.